It's the weekend!

Grab a cup of coffee, in this thread I will explain

1. What is a Dividend Discount Model?
2. What are its main components?
3. How to use it to value a business?

Lets dive right in.

Before I explain what a Dividend Discount Mode is, lets understand what is the main crux of valuations?

The entire reason behind valuing something is to determine, how much return your investment will generate within a specified period of time.

Return here stands for the cash flow generated by the asset.

Every asset by its nature, will generate returns.

For Fixed Deposits = Returns are Interest Payments

For Real Estate = Returns are Rent Payments

For Debt Securities = Returns are coupon payments

For Stocks = Returns are Dividends + Any Appreciation in Stock Price

To perform the exercise of valuation means to determine what these returns are worth today.

Why?

Cause Rs 100 today is worth more than Rs 100, 10 years later.